Blog: It’s time for the G20 to shift from words to action on fossil fuel subsidy reform

It's time for the G20 to shift from words to action on fossil fuel subsidy reform

By Sandrine Dixson-Declève

16 November 2015

The G20 was one of the first international bodies to put fossil fuel subsidy reform on the global agenda. As early as 2009 they committed to "phase out and rationalise over the medium term inefficient fossil fuel subsidies". Despite re-affirmation of this pledge, reform has been slow. In 2014 over $500 billion was spent on fossil fuel subsidies, four times those invested in renewables.

As they meet on 15-16 November in Antalya, Turkey, G20 leaders should turn their six-year old pledge into practical action. This would be a significant contribution to the radical emissions cuts needed to limit global warming to 2 degrees Celsius, and would accelerate the transition to a low carbon and climate-resilient economy. Just three weeks before COP21, concrete steps by the world’s major economies to reform fossil fuel subsidies could be a game-changer for the crucial climate talks in Paris.

Two fiscal policy tools can drive decarbonisation and level the playing field for low carbon energy: the adoption of carbon pricing and the elimination of fossil fuel subsidies; both integral parts of the proper costing of high carbon externalities in economies. Paying a price for emissions while, at the same time, encouraging the activity that causes them is perverse.

Three of the key reasons for the G20 to eliminate fossil fuels subsidies now:

Subsidies just don’t make business sense – Business relies on enabling policy and operates best when it has long-term certainty to direct its investment decisions. Clarity that public resources are shifting away from fossil fuels offers the certainty the private sector needs and will unleash investment in innovations that accelerate the growth of renewables, electric vehicles and low carbon infrastructure, bringing the cost of these technologies down. Many, including the Global Subsidies Initiative (GSI), argue that by artificially depressing the cost of fossil fuel consumption and production, subsidies distort the comparative cost of renewable energy and energy efficiency, limiting their growth. Already low-carbon sectors are showing healthy growth of 4 per cent p.a. or better globally, offering much needed job creation and this can be expected to continue or improve depending on the direction of G20 public spending.

Subsidies don’t benefit development; they reinforce poverty – Governments often justify fossil fuel subsidies as supporting energy access or wealth sharing in the case of oil producing nations. The International Monetary Fund (IMF) has shown that artificially deflating fossil fuel consumer prices encourages wasteful consumption by the rich and middle-class, who benefit by up to six times more than the poor and vulnerable.

Government action creates the space for business action – At national and global levels, the power of progressive business has accelerated decarbonisation. Signaling a move away from fossil fuel subsidies will give businesses and investors the confidence that governments are truly embracing the path towards low-carbon energy. The Prince of Wales’s Corporate Leaders Group, which brings together 24 global corporations, has endorsed The Friends of Fossil Fuel Subsidy Reform Communiqué, a cross-sector clarion call for a just, accelerated and transparent action plan to eliminate perverse fossil fuel subsidies and walk the talk towards decarbonisation. Initiated by New Zealand and other non-G20 countries, the Communiqué is supported by 25 countries (including six G20 nations), alongside stakeholders from all sectors, and will be officially presented on the opening day of COP21.

The growing support for reform from governments and business demonstrates just how widespread the call for change is. With energy prices at an all-time low, now is the right time to phase out fossil fuel subsidies with a gentler impact on consumers and national economies. A clear action plan from G20 governments will earn the trust and support of global business, as well as citizens, some of whom mobilised this weekend in Turkey and around the world, asking world leaders to shift from words to action on fossil fuel subsidies.

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